Re: CPI Composition
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Why, instead of house prices, do they list, “Owners Equivalent Rent of Primary Residence”? Housing prices have soared recently, but for some reason this information isn’t included in CPI.
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I believe this is known as an imputed cost. You have to live somewhere, but we aren't in the market for a house every day, so since housing costs are such a major part of our expenses, this is the way they do it.
The reason they do rental price rather than purchase price is that purchasing a home involves to some degree the idea that there will be a capital gain in the price of the house, it's not a pure consumption item. Rent is pure consumption. FWIW, rent vs. buy comparisons for homes has always been a pretty good test of whether or not housing prices are too high in a given area. In many areas, even though housing prices soared, rents did not, meaning that a great deal of the housing price increase was an investment driven price rise, not a consumption driven price rise.
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